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The K-12 public school system isn't the only education arena the Obama administration has set its sights on. Though less publicized, the Department of Education has enacted major changes in higher education over the past year, most of which expand government's reach and punish for-profit competitors, say critics.

Student Loan Takeover

In the biggest change to the federal student loan program since it began in 1965, the federal government eliminated its private sector competition. Previously, students and their colleges could choose to borrow through a local lender or the U.S. Department of Education (ED). In 2008, 15 million students opted for nongovernmental lenders while only 4 million chose to borrow directly from Washington. Since July, the ED is the sole originator of government-backed student loans.

President Obama and congressional Democrats claim that cutting out the fees paid to banks will save the government more than $61 billion that can be spent on expanding Pell Grants and other government programs. Senator Lamar Alexander (R-TN), former U.S. education secretary under George H.W. Bush, said the government bureaucracy was unlikely to realize such dramatic cost savings, and would in any case offer students inferior service as compared to private lenders. He suggested that if the Obama administration's only motive was to save student borrowers money, it would have simply reduced the interest rate by 1.5%.

America's Student Loan Providers (ASLP), a trade group representing leading providers of higher education loans, claims that the federal Direct Loan program has historically not saved the taxpayer "a single dime," but instead has spent $10.7 billion more on interest payments than it has collected from students in interest and fees. In contrast, private lenders who participated in the Federal Family Education Loan (FFEL) program - now eliminated by the new law - returned more than $12 billion to the U.S. Treasury because the government significantly overestimated costs of the program. ASLP's website also notes that more than 500 schools left the federal Direct Loan program in order to return to the FFEL program, providing a clear indication that schools and students preferred FFEL lenders over the government-administered option.

The new law also tries to steer students into government and other public sector employment by providing substantial financial incentives. All borrowers who keep up their payments for 20 years will have their remaining principal forgiven, but those who choose fields such as teaching, nursing or military service will have their loans forgiven five years earlier. Moreover, under the College Cost Reduction and Access Act of 2007, students who go to work for federal, state or local governments can have their loans forgiven after only 10 years, a compensation perk the private sector is unlikely to be able to match. (New York Times, 3-21-10; Washington Post, 3-7-10; Heritage.org, 10-11-10)

Onerous New Regulations Restrict Competition and Harm Students

As bad as the takeover of student loans may be, that law was at least considered and passed by the legislative branch. In contrast, the Department of Education (ED) has proposed to subject every college and university in America to 14 new rules through its regulatory powers. Two of the regulations that have generated the most resistance from education stakeholders are outlined below.

State Authorization of Higher Ed Institutions

One regulation would require schools to obtain operational authorization from state governments in order to participate in federal financial aid programs. Very few postsecondary institutions could maintain financial viability if not permitted to enroll students who utilize federal grants and loans, so they will have no choice but to comply.

The ED's rationale for this drastic increase of government intervention ostensibly stems from allegations of unethical marketing and the falsification of loan applications at some institutions. Critics point out that there are already laws in place to prosecute such bad actors, and it is therefore unreasonable to subject thousands of reputable schools to state authorization because of the unscrupulous behavior of a very few.

Historically, independent regional agencies have been entrusted with ensuring that schools that receive federal funds meet at least minimal standards of educational quality. Though this system has significant shortcomings, the proposed state regulatory scheme would not address current failures and would cause additional problems, according to Heritage Foundation analyst Matthew Denhart.

According to Denhart, mandating state licensing would raise institutional costs without providing commensurate benefits, restrict competition, discourage innovation, and ultimately raise education costs for students. Most troubling perhaps, authorization could easily become politicized, and could lead to state control of course curricula.

The specter of politicization is of particular concern to private and religious institutions, because they often have unique educational missions. Former U.S. Senator Bill Armstrong, now president of Colorado Christian University, told WorldNetDaily that this regulation is "the greatest threat to academic freedom in our lifetime." In a letter to Education Secretary Arne Duncan, Armstrong warned of an "all-out politicization of American higher education, endangering academic freedom, due process and First Amendment rights."

Two Colorado Republican Congressmen also sent letters to the ED with similar concerns. Representative Doug Lamborn said the new rule would undermine "long-established independent accrediting agencies." Representative Mike Coffman said it would potentially give government unwarranted authority to set "course requirements, quality measures, faculty qualifications and various mandates about how and what to teach." (Tribune Media, 9-22-10; wnd.com, 10-3-10; Heritage.org, 11-4-10)

Gainful Employment Regulations

Another regulation targets for-profit institutions only, and will harm employment prospects for minority and low-income students in particular, say critics. The rule is supposed to protect students from incurring heavy debt loads for educational programs that don't prepare them for "gainful employment." It attempts to meet that goal by restricting or eliminating federal aid to for-profit institutions whose student populations don't meet specified loan repayment rates, or whose debt ratios are greater than 8% of their estimated annual earnings. Never mind the fact that a philosophy major at a pricey nonprofit institution may leave school with dismal job prospects and average debt of $24,000; nonprofit schools are exempt from this regulation.

For-profit educational institutions generally teach specific job skills instead of offering a liberal arts education, and their students are more likely to be low-income, racial minorities, high school dropouts with GEDs, or first-generation college students. If allowed to stand, this regulation will eliminate approximately 67 associate's programs for medical assistants, 22 culinary arts programs, 21 health technician programs, and 18 programs in accounting and bookkeeping, according to an analysis by education think tank Education Sector. According to the Bureau of Labor Statistics, these are the very fields expected to experience the largest job growth between 2008 and 2018. These careers, and others like mechanic and electrician, are also the fields most nonprofit colleges and universities don't include in their educational offerings.

Independent analysts such as the Parthenon Group assert that the regulations could cause 400,000 students to leave post-secondary schools each year, resulting in a 15% average loss in lifetime earnings, $400 million in lost tax revenue, and additional taxpayer burdens for that population. All told, Parthenon estimates that this regulation would lead to an annual net loss of $3.4 billion for taxpayers, despite a possible $1.9 billion reduction in federal student loan defaults.

Operators of for-profit schools say they are being unfairly singled out. It is true that tuition and therefore loan balances are generally higher at these schools than at community colleges. This is so in large part because for-profit schools are not heavily subsidized by taxpayers as nonprofit schools are, and because they must pay taxes, unlike their nonprofit counterparts. Both of these factors increase tuition rates, but they also reduce the overall taxpayer burden for this student population.

Despite charging higher tuition, private education companies appear to be filling a need for concrete job skill training, because enrollment has tripled to around 1.8 million in the past decade, far outpacing that of nonprofit rivals. If graduation rates are any indication, private education companies also deliver superior outcomes, with 65% of students completing their degree programs as compared to only 44% at community colleges. (Heritage.org, 11-4-10; Wall Street Journal, 8-27-10)

Feds Overreach Into Higher Education

The finalized rules for higher ed institutions, released by the ED in late October, appeared to offer some concessions in response to strong public and congressional criticisms of the original proposal. Bill Armstrong told WorldNetDaily that "'religious and tribal institutions' will be exempted from state oversight . . . according to a report from The Chronicle of Higher Education." Nonetheless, Armstrong was cautious about declaring victory until he had a chance to digest the 82 rule changes scattered throughout the nearly 900-pages of fine print. "It's too soon to declare victory because, as always, the devil is in the details," he said. "It will take awhile to sift through this massive document and understand exactly what has happened. However, one thing is sure — more control over students, faculty, staff and nation's colleges and universities. What a pity!"

Though the ED considers these rules "final" — except for the "gainful employment" rule, which will not be published in its final form until early 2011 — the new Congress has the authority to overturn the ED regulations if it so chooses. According to Armstrong, at least three members of the Senate committee that oversees the ED are "as upset as we are about what's going on." (wnd.com, 10-30-10)

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